What Are Dividends Declared in Accounting?


Quick Answer

Accrued dividends refer to declared dividends that have not been disbursed to shareholders, according to Investopedia. Accrued dividends are regarded as a liability until the payout date.

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What Are Dividends Declared in Accounting?
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Full Answer

Investopedia explains that there are no accounting rules as to when the accrued dividend should be recorded, but most companies record it a few weeks before the payment date. When the dividend is paid to the shareholder, the dividend is a separate entity from the stock and becomes property of the shareholder. This allows the shareholder to become a creditor for the company.

Accounting Tools notes the several different types of dividends. For instance, there are cash dividends and stock dividends. Cash dividends are paid from the board of directors to investors who have stock in the company. Cash dividends are paid on the declaration date. A stock dividend is issuance of common stock from the company to common shareholders. If the company issues less than 25 percent of its past outstanding shares, it is known as a stock dividend. If it is greater than the portion of outstanding shares, it is called a stock split.

Account Tools further notes that the recording of a stock dividend requires the transfer of retained earnings to capital stocks and other paid-in capital. This amounts to the fair value of the issuance of additional shares. The fair value of the surplus shares are based on the fair market value when the dividend reaches declaration.

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